Today(on April 3rd), the Bengaluru bench of the National Company Law Tribunal (NCLT) rendered a split verdict on an interim petition lodged by investors concerning Byju’s rights issues and Extraordinary General Meeting (EGM).
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Bengaluru: The Bengaluru bench of the National Company Law Tribunal (NCLT) has issued a split decision regarding an interim plea from investors concerning Byju’s rights issues and its Extraordinary General Meeting (EGM).
This decision, rendered on today(April 3), has led to the anticipation of the case being assigned to a third NCLT member for a subsequent hearing. NCLT benches, traditionally composed of a judicial and a technical member, play a crucial role in resolving such corporate disputes.
The plea revolves around the concerns of investors regarding the embattled ed-tech company’s rights issue and the proposed increase in authorized share capital through the EGM.
Byju’s, the parent firm of Think and Learn Pvt. Ltd, had previously approved a rights issue to raise USD 200 million from existing investors. The company concluded its EGM to raise authorized share capital on March 29.
Following the EGM, four investors of Byju’s, namely Prosus, General Atlantic, Sofina, and Peak XV, initiated legal action against the company, alleging oppression and mismanagement. They petitioned to declare the founders unfit to oversee the company’s operations and requested the appointment of a new board. Additionally, the lawsuit aimed to invalidate the rights issue intended to raise USD 200 million.
The investors’ allegations encompass purported financial mismanagement by the founders, oppressive lack of transparency, and deliberate failure to disclose information to stakeholders. Their claims are bolstered by the backing of fellow shareholders like Tiger Global and Owl Ventures.
The company submitted its financial statements for the FY 2021-2022 on January 23, following a delay of nearly 22 months. The financials unveiled a substantial surge in revenue from Rs. 2,428 crore in FY-21 to Rs. 5,298 crore in FY-22. However, losses also escalated from Rs. 4,564 crore to Rs. 8,245 crore during the same timeframe. In FY-22, the company reported an EBITDA loss of Rs. 4,599 crore, while expenses doubled from Rs. 7,027 crore in FY-21 to Rs. 13,668 crore in FY-22.
In October 2023, Byju’s announced a business restructuring plan, resulting in the layoff of 500 employees. Additionally, the company informed its staff of a delay in March salary disbursements due to an interim order secured by foreign investors. Byju’s clarified that the imposed restrictions by these investors have compelled them to temporarily suspend salary payments until the restrictions are lifted.
The NCLT placed a plea by investors to halt the rights issue of Byju’s before the president of the tribunal due to a difference of opinion between the members of the Bengaluru bench.
During the extraordinary general meeting held on March 29, there were no objections to the resolutions discussed. However, dissenting investors who had previously stayed away from the rights issue were invited by CEO Byju Raveendran to participate in it. None of them chose to participate.
The NCLT hearing on March 28 revealed that investors argued that Byju’s did not allow them to conduct an inspection of the documents required to make an informed decision on how to vote at the EGM. They also claimed that all shareholders were not served notice for the EGM, as required by law.
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Despite the company’s efforts to obtain a legal sanction for its rights issue, it has been unable to utilize the funds raised due to an NCLT order. The tribunal directed Byju’s to keep the funds received from the rights issue in an escrow account until the disposal of the oppression and mismanagement plea filed by the four investors.
Byju’s has been unable to pay its employees due to the restriction imposed by the NCLT order. The company has experienced delays in salary disbursement for the second consecutive month. However, the management assured employees that regardless of the court verdict, salaries can be expected by April 8.
